10/15/2007 @ 6:00PM

Mitch Martin On Retirement 2017

Demographics meet technology meet globalization. American baby boomers and succeeding generations will live a long time in relatively good health and will need more money than they have saved to do it. This will lead to a major shift in savings patterns, and, therefore, investment.

The Unconventional Wisdom

Life spans will be significantly expanded. People in developed countries will routinely live past 100. Retirees will have to live off their earnings without dipping into their principal and government pension plans–and even if they don’t go bust they will not be able to keep up with inflation.

The Misplaced Assumption

Investors will continue to shift their holdings to bonds from stocks as they age. The average 401(k) account of a 60-something American is about $160,000. At a 6% rate of return without touching the principal that would add about $800 to the maximum monthly $2,116 U.S. Social Security payment, leading to annual income of $35,000 per year. That’s nowhere near enough for most people. Elderly workers will stay at work as long as they can and will invest far more aggressively than previous generations.

The Watch List

Asset managers that reliably help middle-income people amass wealth through well-run, low-cost mutual funds and the like. Think T. Rowe Price and
Legg Mason
more than
Goldman Sachs
and
Bear Stearns
.

The Bold Prediction

Fear and greed are a good combination. With increasing sums directed to potentially high-yielding equity investments, capital should find its way to deserving and innovative companies, bolstering global economic growth.